38 Pages Posted: 13 Jun 2013 Last revised: 26 Oct 2015
Date Written: June 1, 2013
For the highly traded S&P 500 exchange traded fund SPY, we find that, over time, transaction size has been decreasing while the number of consecutive buy or sell transactions has been increasing due to the increased prevalence of high frequency trading and order splitting. Collapsing sequences of buy or sell transactions into single transactions produces a time series that has a time-stationary distribution and is more tractable for empirical market microstructure models. If sequences are not collapsed, measures of illiquidity are underestimated, implying that increased high-frequency trading may not necessarily be associated with improved liquidity.
Keywords: microstructure, liquidity, high-frequency trading, HFT
JEL Classification: G10, N20
Suggested Citation: Suggested Citation
Kim, Soohun and Murphy, Dermot, The Impact of High-Frequency Trading on Stock Market Liquidity Measures (June 1, 2013). Available at SSRN: https://ssrn.com/abstract=2278428 or http://dx.doi.org/10.2139/ssrn.2278428
By Jim Gatheral